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EIA SEES RECORD SUMMER GASOLINE PRICES, LOCAL SHORTAGES POSSIBLE

Story Filed: Tuesday, March 14, 2000 6:27 PM EST

Mar. 14, 2000 (Octane Week, Vol. 15, No. 11 via COMTEX) -- The U.S. is on track to suffer its highest gasoline pump prices on record this summer, even if OPEC and other crude producers agree later this month to increase production, according to the Energy Information Administration's (EIA) latest forecast. If OPEC does not sufficiently boost output soon, some fuel shortages are possible this summer, said EIA, noting that signs of an early spring gasoline price jump are already evident.

"U.S. wholesale and retail gasoline prices are poised to surge to unprecedented levels before the spring is out," EIA said in its March Short-Term Energy Outlook. "Already, national average prices have reached levels heretofore associated with critical oil disruption fears."

Regular retail gasoline prices are now expected to average more than $1.50/gal this April-to-September driving season, revising last month's forecast up by a dime, EIA said. That means summer drivers will pay about 35 c/gal more than at the same time in 1999.

The February spread between the wholesale gasoline price and the cost of crude oil was estimated at 29 c/gal - some 30-40% over the expected normal level. "Unusually high spreads often accompany supply problems in the U.S. gasoline market," explained EIA. The evidence "signals the likelihood of an extraordinary price run up in March and April."

Depleted gasoline inventories make for a volatile situation and any supply disruption could send prices even higher. At some point during the summer, peak motorist demand could drive the nation's monthly average pump price up to $1.80/gal, warned EIA.

RFG II is Additional Concern

While not likely, EIA also sees an increased possibility of regional fuel shortages in areas that must use the new federal Phase II RFG. "[A] low gasoline inventory raises the risk of localized shortages, " notes EIA. "The new requirements for reformulated gasoline may slow the response time for delivery of emergency supplies."

In California, which requires its own cleaner gasoline and is generally removed from supply sources in the rest of country, gasoline could become considerably more expensive and supply "strained," EIA warned.

Analysts outside the government generally viewed the EIA gasoline forecasts as far too conservative. "In the best case, we are looking at $2/gal retail gasoline this summer. In the worst case, we could get to $2.50/gal," said one consultant.

The key force behind rising gasoline prices will be the OPEC-led crude production cuts that will continue to squeeze crude inventories, EIA reports.

The stubbornly low crude inventories forced EIA to upwardly revise its crude price forecast for the year. "Average crude oil prices are expected to increase by more than $9/bbl this year, compared to a projected $7/bbl in the previous forecast," said EIA. Refiners will pay an average $27.65/bbl for crude in the second quarter before prices begin to ease in the second half of the year.

Analysts See Higher Crude in 2000

Oil analysts at Deutsche Banc increased their oil price forecast for 2000. "OPEC's conservative production plans, robust demand growth and limited non-OPEC supply response for 2000 should keep inventories at unusually low levels," said Deutsche Banc's Adam Sieminski.

"The oil equity team is raising its year 2000 WTI forecast to an average of nearly $25/bbl, up from $21, and we see 2001 prices at $20.50/bbl, up from $19.50," he said. --Spencer Kelly

Copyright ) 2000, Octane Week, all rights reserved.

-- (Dee360Degree@aol.com), March 14, 2000

Answers

And a FUN Summer it will be indeed!

What about the 'rumors' of electricity shortages & blackouts this summer?

Always felt this year would be just a 'bit' different than the standard doomer OR polly predictions. Starting to look just way now.

-- BeNeither (APollyNorA@Doomer.com), March 15, 2000.